How To Raise Capital To Fund Your Business
By Charles Hopkins
Published 04/20/2006 | Entrepreneur
Raising capital to start a new business may seem like a daunting task, but it need not be overwhelming if you follow a few basic business practices. If you have a viable idea that will net a return for your investors and prepare a compelling business plan the chances are good that you can find investors to join you.
Your first task is to create a business plan, sometimes known as a business proposal or prospectus. Your business plan needs to be very detailed and concise. You should include information about your educational background, experience and training in the area of business you are contemplating. Just like a resume for a job, include references and any other favorable personal qualities that you feel reinforce the reasons why an investor should trust in your ideas.
It cant hurt to include any information you feel comfortable sharing with regard to your positive credit history. If you have records of various satisfied loans along with the payment history, that information could be helpful to prove your stability with regard to financial obligations.
If you are requesting financing for an existing business the rules are a bit different than a new business startup. The current owner should be able to provide you with profit and loss statements. If you are purchasing an online business, statistical information pertaining to traffic, number of units sold and paid advertising are definitely necessary. The purchase price of the business needs to be included along with detailed information about how you intend to service the debt as well as how the potential investor will benefit from your request.
If you are seeking investors for a new business, the information required increases. In addition to the information outlined above, you will need to include market research, projected costs and a detailed summary of how you intend to generate income. This information needs to be projected for a period of three to five years. Its a good idea to project your expenses on the high side.
Have some idea of what you expect to pay your investor. The only reason someone is going to lend you money is if they can see decent profits in exchange for lending it to you. Your market research had best substantiate that your plan is viable and will provide them with sufficient return on investment to justify their involvement.
Before you begin your search for investors, its a good idea to have an attorney and/or accountant take a look at your plan. A good professional may suggest specific points that you may have overlooked.
Once your paperwork is in order, its time to start looking for investors. One place to begin your search might be friends or family. You might approach them singularly or in a group. Whatever method, you need to have a complete copy of your proposal carefully outlining your research and what they can expect in return for their assistance.
Read the classified pages of your local newspaper. Venture capitalists often advertise this way. Their rates are usually pretty high because they have a tendency to take on risky investments. A twist on this method might be to run your own ad either locally or nationally. If you select this method, explain the particulars and emphasize how much they can expect to receive for the load of their funds.
Use local business directories to find companies that specialize in investment services. You can approach a local bank, but try and find a bank that specializes in industrial or business type loans.
You might consider incorporating and selling stock in the company.
Another option might be a money broker. This can be risky. There are some legitimate brokers and others who operate on the shady side.
Be creative. If you believe in your idea, dont be afraid to do what ever it takes to launch. There are plenty of ways to come up with the capital you need. Think outside the box. Whether you are looking for 300 or 300,000 the money is there you just need to dig for it.